TEODORO A. REYES, PETITIONER, VS. ETTORE ROSSI, RESPONDENT.

Reyes versus Rossi

The Case

This is a petition for review brought by Teodoro A. Reyes against Ettore Rossi, who sued in representation of Advanced Foundation Construction Systems Corporation. The dispute grows out of a deed of conditional sale of a dredging pump, the post-dated checks Reyes issued for the balance, and the criminal charges for violations of the Bouncing Checks Law that followed when those checks were dishonored. Reyes had earlier filed a civil action for rescission of the sale, and he insisted that this civil action posed a prejudicial question that should suspend the criminal proceedings. The case matters because it draws the line between a civil suit that merely runs alongside a criminal prosecution and one that truly controls its outcome — a distinction every examinee must be able to state as a rule.

Procedural History

Reyes commenced an action for rescission of contract and damages in the Regional Trial Court in Quezon City. Meanwhile, Rossi filed with the Office of the City Prosecutor of Makati charges of estafa and violations of the Bouncing Checks Law against Reyes, and a further charge for violation of the same law was lodged with the Office of the City Prosecutor of Quezon City. The Assistant City Prosecutor handling the preliminary investigation recommended the dismissal of the estafa charges and the suspension of the proceedings on the bouncing checks charges on the ground of a prejudicial question, and the City Prosecutor of Makati approved that recommendation. Rossi appealed to the Department of Justice, but the Secretary of Justice denied his petition for review, and later denied his motion for reconsideration.

Rossi then went to the Court of Appeals by petition for certiorari, arguing that the Secretary of Justice had committed grave abuse of discretion. The Court of Appeals granted the petition in part: it reversed and set aside the order suspending the preliminary investigation on the ground that no prejudicial question existed, while affirming the dismissal of the complaint for estafa. Reyes elevated the matter to the Supreme Court by petition for review.

Facts

On the last day of October 1997, Reyes and Advanced Foundation, represented by Rossi as its Executive Project Director, executed a deed of conditional sale covering a Warman Dredging Pump worth 10,000,000 pesos. Reyes paid 3,000,000 pesos as downpayment and covered the 7,000,000 peso balance with four post-dated checks. In January 1998 he asked that the obligation be restructured, and Advanced Foundation agreed, returning the four checks. Reyes then issued nine post-dated checks drawn on the United Coconut Planters Bank, aggregating 7,125,000 pesos, which included interest of 25,000 pesos per month on the unpaid portion.

Rossi deposited the checks as they matured. Two were denied payment upon Reyes's instruction to stop payment, one was dishonored for insufficiency of funds, and two more were returned with the notation account closed. Rossi did not deposit the three remaining checks, assuming they would be dishonored as well.

Earlier, in July 1998, Reyes had sued for rescission of the contract and damages, complaining of misrepresentations about the pump's specifications and demanding proof of ownership. In his counter-affidavit before the Makati prosecutor, he claimed the checks had not been issued for valuable consideration, detailed the defects he had discovered in the pump, and argued both that the Makati prosecutor lacked jurisdiction and that the civil action posed a prejudicial question. The prosecutors agreed with him on the prejudicial question; the Court of Appeals did not.

Issues

• Whether or not the civil action for rescission of the contract of sale raised a prejudicial question that required the suspension of the criminal prosecution for violation of the Bouncing Checks Law.
• Whether or not the Court of Appeals erred in ruling that no prejudicial question existed and in relying on prior jurisprudence involving different factual backgrounds.

Applicable Provisions

Section 7 of Rule 111 of the 2000 Rules of Criminal Procedure states the elements of a prejudicial question:

Section 7. Elements of prejudicial question. – The elements of a prejudicial question are: (a) the previously instituted civil action involves an issue similar or intimately related to the issue raised in the subsequent criminal action, and (b) the resolution of such issue determines whether or not the criminal action may proceed.

This provision supplies the test the Court applies, and the case turns on whether the second element is satisfied.

Article 1191 of the Civil Code governs the rescission that Reyes sought:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfilment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

This article matters because rescission presupposes a valid contract and operates only once decreed, so the obligation to fund the checks subsisted when they were dishonored.

Ruling

The Court denied the petition. On the first issue, it held that no prejudicial question existed. A prejudicial question arises where a civil action and a criminal action are both pending and the former contains an issue that must first be determined because its resolution would be determinative of the guilt or innocence of the accused; the rationale is to avoid conflicting decisions. Both elements of Section 7 of Rule 111 must concur.

The Court compared the issues. The criminal cases ask whether Reyes issued the dishonored checks knowing he had insufficient funds or credit upon presentment. The civil case asks whether Advanced Foundation's breach warranted rescission. Even if rescission were decreed, that result would not necessarily absolve Reyes, because he already committed the offense upon the dishonor of the checks, at a time when the conditional sale was still fully binding. His obligation to fund the checks should not be tied to the future event of rescission. As the Court put it, under the Bouncing Checks Law the mere issuance of a worthless check was already the offense in itself.

The Court also stressed that rescission under Article 1191 presupposes a valid contract, and that until the contract is rescinded the juridical tie and the concomitant obligations subsist. On the second issue, the Court found no reversible error in the Court of Appeals' reasoning and affirmed its decision.

Doctrine

For a civil action to suspend a criminal prosecution as a prejudicial question, two elements under Section 7 of Rule 111 must concur: the civil action involves an issue similar or intimately related to the issue in the criminal action, and the resolution of that issue determines whether the criminal action may proceed. The civil action must be determinative of the guilt or innocence of the accused; if the civil and criminal actions can proceed independently, there is no prejudicial question.

A prosecution for violation of the Bouncing Checks Law requires only the making, drawing, and issuance of a check for account or value, knowledge of insufficient funds or credit at the time of issue, and subsequent dishonor. The offense is consummated upon dishonor, so a pending action for rescission of the underlying sale — which presupposes a valid contract under Article 1191 — does not preclude the criminal proceedings.

Disposition

The Supreme Court denied Reyes's petition, affirmed the decision of the Court of Appeals, and directed Reyes to pay the costs of suit.

Remember This

Memorize this line: the rescission of a contract of sale is not a prejudicial question to a prosecution for violation of the Bouncing Checks Law, because the offense is complete upon the dishonor of the check while the contract still subsists. Examiners use this case to test the two elements of a prejudicial question under Section 7 of Rule 111 and the rule that rescission under Article 1191 presupposes a valid contract.